Robo-advisor

Robo-advisors are special kinds of financial advisers that help people with their money online. They mostly do this without a person talking to you. They use smart computer programs to give advice just right for each person. These programs look at what a person has and how much risk they are willing to take. Then, they decide how to spread the money out to get the best results over time.

These services can help anyone, not just rich people. They usually cost less than having a human advisor. Robo-advisors often use something called exchange-traded funds to manage money. These are groups of different investments that can be bought and sold easily. People can pick between two ways the money is handled: one that stays mostly the same and one that tries to change to do even better. This makes it easier for anyone to manage their money, even if they don’t know a lot about investments.

History

The first robo-advisor, Betterment, started in 2010 by Jon Stein. Soon after, in 2011, Wealthfront joined. Before these, online tools for managing money existed in the early 2000s.

More robo-advisors appeared in different countries: MoneyFarm in Italy in 2012, Nutmeg in the United Kingdom in 2013, Stockspot in Australia in 2014, and others like QuietGrowth in Australia and 8 Securities in Japan in 2015. In 2017, StashAway in Singapore got official approval to operate.

Later, the robo-advisor industry changed. Some companies stopped offering their services or changed their plans. For example, Goldman Sachs sold its Marcus Invest to Betterment in 2024, JPMorgan stopped its Automated Investing, and UBS planned to close its Advice Advantage robo-advisor.

Generative AI and large language models

In the early 2020s, some companies that give digital financial advice began using new computer programs. These programs are called generative artificial intelligence and large language models. They help give investment advice online. For example, Morgan Stanley started using a tool in 2023 to help advisers with tasks like finding research and writing messages to clients.

Regulators in the United States, such as the U.S. Securities and Exchange Commission and FINRA, said these new tools must follow the same rules as other investment advice services. They made sure companies were clear about how they used these tools.

Definition

A robo-advisor is an online service that helps people manage their money and investments. It uses computer programs to give advice. This keeps costs low and makes it easy for anyone to start. Some robo-advisors also have people checking on things.

Legally, a financial advisor gives personal advice about money. Robo-advisors mainly help with choosing where to put money for investments. They do not usually handle other money matters like planning for retirement or managing cash. Robo-advisors can give advice that is personal to each person’s situation, as well as general advice that applies to everyone.

Other names for companies that make robo-advisor software include "automated investment advisor," "automated investment management," "online investment advisor," and "digital investment advisor."

An investment platform can only be called a robo-advisor if it gives advice that is personal to each person’s needs.

Areas served

Robo-advisors are mostly used in the United States, but you can also find them in Germany, Australia, India, Canada, and Singapore.

These tools help people with money questions, like saving for the future, planning for retirement, and managing taxes.

Methodology

Robo-advisors use computer programs to help manage money, like software used by professional money managers. They suggest investments such as exchange-traded funds or sometimes individual stocks. They often follow a method called modern portfolio theory, which tries to lower risk while hoping for good returns. Some robo-advisors focus on socially responsible investing, Halal investing, or strategies like hedge funds.

Consumer access

Traditional financial planners often need a lot of money to start working with you, usually around $50,000. This makes it hard for many people to get help with their money. Robo-advisors solve this problem by letting people start investing with as little as $500 in the United States and even just £1 in the United Kingdom.

Robo-advisors are also useful for people with a lot of money, known as high-net-worth individuals, who are now using these services too high-net-worth individual. They charge lower fees, from 0.2 percent to 1.0 percent of the money being managed, compared to traditional planners who charge about 1.35 percent.

Regulation

In the United States, robo-advisors must be registered investment advisors. They are watched over by the Securities and Exchange Commission. In the United Kingdom, they are overseen by the Financial Conduct Authority.

Robo-advisors that handle client money have special accounts for clients. This makes them different from micro investing firms, managed funds, and investing platforms. In Australia, robo-advisors use the Managed Discretionary Account (MDA) structure.